Deutsche Bank (DB) announced it will temporarily suspend creations of 26 exchange-traded notes (“ETNs”) after the close of trading on March 29, 2013 (sic). DB apparently forgot March 29 is a market holiday, so the last day of “non-broken” status for these ETNs will actually be March 28. The suspension affects 24 PowerShares DB ETNs and two ETNs marketed under the ELEMENTS brand. This action brings the number of active listings with “broken product” status to 39.

The creation/redemption mechanism is the heart and soul of exchange traded products (“ETPs”). It is what sets ETFs and ETNs apart from all other investment vehicles. When that mechanism is not functioning properly, it destroys the ability of market makers and authorized participants to take advantage of arbitrage opportunities and keep the trading price close to the underlying net asset value (“NAV”). The ETFs and ETNs become broken products. In extreme cases, price premiums exceeding 1,000% can develop, which is what happened with the ELEMENTS MLCX Gold ETN.

Deutsche Bank claims the creation suspensions are temporary and related to a technical issue with a delay in filing its 2012 annual report. The firm expects to lift the suspensions following the publication of its annual report and Form 20-F in mid-April 2013.

Note: three of these products have Canadian listings with different ticker symbols and will also be affected (NYSE: DTO – TSX: DOE, NYSE: DZZ – TSX: DGJ, and NYSE: DGP – TSX: DGU).

Disclosure covering writer, editor, and publisher: Long AMJ. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

Comments

Ron,
With regard to the article you wrote on 3/19/13, titled “Broken Product Count Jumps To 39 With Deutsche Bank ETN Creation Suspensions”, I was curious if there have been any further developments on the Powershares ETN’s, specifically symbol DGZ. Any additional information or developments would be much appreciated.
Thank you!

Ron Rowland on
April 19th, 2013 9:26 am

John,
DB issued a press release earlier this week saying that creations would resume after the market closes on 4/15/13 for the 26 ETNs mentioned above.